Law and Business in Emerging Markets

When Leith Masri was helping to put together Microsoft’s first investment in the Arab world in 2002, he hit a roadblock—Jordanian law didn’t have the corporate structure Microsoft’s deal negotiators wanted. At the time, the government of Jordan recognized only two corporate forms: limited-liability companies or full-fledged publicly traded corporations.

So Masri, JD/MBA ’98, pulled out his law school binders and wrote his own law.

“To make the deal happen, we took on the burden of changing the law,” says Masri, who co-founded Foursan Group, a private equity company with a primary focus on Middle Eastern investments. He and his team at Foursan, which has offices in the U.K. and Jordan, drafted a new Jordanian statute that allowed a private shareholder company to be governed by a contractual agreement, as is common in the United States. “Since then, most Jordanian companies have been created under that law,” he says.

Masri is one among a cadre of Stanford Law grads who have taken their legal skills on the road to emerging economies. From Ethiopia to Kazakhstan, growing markets are offering lawyers new opportunities around the globe. Alums taking this career path less traveled are motivated equally by both business opportunities and a desire to help these countries develop their economic, political, and legal systems. According to the Institute of International Finance, roughly $1 trillion in capital flowed into emerging markets last year. “Our students are entrepreneurial, starting programs, companies, and nonprofits. They put themselves out there and take risks,” says M. Elizabeth Magill, Richard E. Lang Professor of Law and Dean. “That spirit extends well beyond Silicon Valley. From an early stage in their careers, they will need to think globally and their clients will have a global footprint. That is becoming the norm rather than the exception. And they know that.”

How best to prepare students for international careers is the central question facing law schools, says F. Daniel Siciliano, JD ’04. “The international market is going to come to dominate, particularly emerging economies. I think people are a bit in denial about this,” he says. “There’s a reason why the elite law firms are doing so much to diversify globally.”

Siciliano, a professor of the practice of law and the associate dean for executive education and special programs, says a number of factors explain the increased interest of U.S. law students in working in frontier markets—not just the potential to take advantage of rapid economic growth—but also a “generational and cultural shift among well-educated, aspiring professionals wherein the world is a lot smaller.” Even minor factors play an outsized role, such as the reduced cost of air travel compared with a decade ago and the low cost and reliability of using Skype to communicate back home. “It’s a change of assumptions, where the world is certainly a place that can more easily be navigated,” he says.

Alumni have their own motivation for seeking opportunities in developing markets—and in many cases they’re taking part in what Hewan Teshome, JD ’08, describes as the beginning of a “reverse brain drain.” Born and raised in the United States but of Ethiopian heritage, Teshome quit her American law firm job with little more than a one-way ticket to Addis Ababa—the capital city of a country with a rapidly growing GDP that has increased 7 to 12 percent annually over the past five years. Because emerging markets like Ethiopia don’t have typical sources of market intelligence, like large numbers of publicly traded companies, there are unique challenges along with tremendous opportunities, says Teshome. “You have to do your diligence on the ground.” Within a few months of arriving in Ethiopia, she wound up signing on as the general counsel for all the subsidiaries of an Ethiopian holding company that is involved in oil and gas, hotels, logistics, and other fields.

“You have to have faith in your skill set, and your training,” she says. “The risk appetite is the biggest thing—you have to throw caution to the wind.”

Teshome, who recently left her position at SouthWest Energy to launch her own company in Addis Ababa, says that the day-to-day work often requires much more than the sheer entrepreneurial passion required to leave behind job security and go in search of a new career. She’s had to wear many hats, much like people who join startup companies. And she now also has a new appreciation for how well trained U.S. lawyers are. With Ethiopia’s less developed commercial law system—the economy as a whole is only beginning to open up to international investors—there are fewer resources to draw on and self-reliance is key.

Like Teshome, many alumni working in emerging markets are drawn to the notion that their business work there will help developing markets create a more transparent, well-functioning legal system. Alexander Benard, JD ’08, who started the Afghanistan Legal Education Project while at Stanford Law and has focused his career on law and businesses in emerging markets such as Iraq, says that many law students with a global interest focus almost exclusively on human rights and foreign aid issues and forget about the positive role that commerce plays in developing the rule of law.

“American law has a tendency to spread its tentacles and exert a healthy influence, because it ups the game and helps spread rule-of-law norms,” says Benard, who recently joined Schulze Global Investments, a private-equity firm focused on developing markets. “When it happens organically, through business, it’s more effective.”

Masri, who was born in the Palestinian territories, agrees that helping emerging markets develop both economically and politically was part of his motivation. Before law school, he’d worked for the financial services company Blackstone and decided he wanted to “build a leading private equity group in the Middle East” to provide a source of funding and expertise that he says is desperately needed in the region and especially in a country like Jordan—which has a sophisticated, educated population with increasingly dynamic leadership but is a small country with limited natural resources.

Working in emerging markets where capital infrastructure is much less developed can require a willingness to trade off not just much of the stability but also—at least initially—some of the financial reward that similar work back in the United States might offer.

“With emerging markets, you need a much more flexible approach, a lot of patience, commitment, and dedication,” says Masri. At the same time, the cultural and economic factors that led to the Arab Spring have resulted in a significant brain drain throughout the Middle East, as young educated workers seek stability elsewhere. This becomes an ongoing challenge for companies but also a motivator for those who stay or, like some SLS alumni, those who choose to come to work there, he says. The legacy of the Arab Spring means that major regional economic powers like Egypt increasingly need people with “a tremendous amount of intelligence and foresight” to help rebuild their political and economic systems, says Masri. So there are opportunities for those willing to look for them.

The absence of a strong rule-of-law culture can be a major shock to new international investors who are accustomed to the highly constrained world of Delaware law. William A. Franke, LLB ’61 (BA ’59), learned that lesson the hard way during an early investment in a Russian airline. Having developed an interest in the low-cost airline market after successfully turning around America West (now US Airways) from bankruptcy, Franke worked on extending the model across the world, in Singapore, Indonesia, Mexico, Eastern Europe, and the Soviet Union.

In the Soviet economy, as in many emerging markets, foreign investors couldn’t own a majority interest in airlines—so Franke’s firm agreed to take a 49 percent interest in the startup airline, leaving 51 percent to the firm’s Russian partner. Just as the business was beginning to make a profit, his Russian partners locked Franke’s team out, literally, by posting armed guards at the doors. Franke consulted a lawyer, who told him that in order to win in litigation, “You’d have to spend time in Russia, and you’d want to be sure you don’t wind up floating in the Moscow River.” It was a critical lesson, he says.

Benard has similar stories. For the last few years, he worked at an advisory services firm that counsels companies not just on legal and regulatory issues but on political and economic factors that can play an even more important role in investments in emerging markets.

One of Benard’s clients, a major tea company, fired its local Iraqi distributor when the company failed to meet its sales targets. Shortly afterwards, without warning or explanation—and in apparent violation of his client’s contractual rights—the Iraqi government yanked Benard’s client’s license to do business in Iraq. “It turned out the distributor was the son of the governor of the main province, and the client hadn’t fully appreciated these dynamics,” Benard says. Benard’s firm helped put in place a complex strategy that involved a little bit of law, and a lot of politics, to restore the tea company’s Iraqi business license.

F. Daniel Siciliano, JD ’04, Professor of the Practice of law and Associate Dean for Executive Education and Special Programs, with M. Elizabeth Magill, Richard E. Lang Professor of Law and Dean (photo by Lenny Gonzalez)

In much of Central Asia, “technocrats govern every walk of life,” says Roy Navon, JD/MA ’97, who founded J.P. Morgan’s Israeli presence nine years ago and has grown it into the leading international bank in Israel. Although Israel has a sophisticated, developed international economy, Navon’s portfolio also includes Central Asia, where, he says, “It’s a totally different psychology.” In Kazakhstan, an important Central Asian economy, the government directly controls most of the capital being used for investments—Kazakhstan’s sovereign wealth fund is responsible for close to two-thirds of the country’s entire GDP. At the same time, he says, these countries are eager to learn from Western economies and investors as they work to shift from a resource-dependent economy into a value-added economy. “There’s a great dependency and a desire to mimic and learn from the West, but there’s also pride in who they are,” Navon adds.

Contrary to the stereotype that lawyers can be more risk- averse than their business counterparts, lawyers may actually have the edge in dealing with risky decisions, says Franke. MBAs can sometimes emphasize too many “what ifs” and can’t make a decision quickly enough. By contrast, he says, because clients demand that kind of advice, lawyers learn about “processing, prioritizing, and developing a solution to issues.”

Siciliano agrees. While slightly more risk-averse people may tend to choose law school over business school, legal education itself also inherently equips people to deal with risks. “We are helping people become more thoughtful about, sensitive to, and structurally creative around risk,” Siciliano says. He says that is reinforced by Stanford’s admissions process that emphasizes experience, not just top scores, and tends to select people with interesting backgrounds who may be more likely to take strategic risks later in their career.

Connected as it is to Silicon Valley, Stanford Law with its innovative ethos makes it a natural place to produce entrepreneurs—and Siciliano adds that a number of factors help students develop, and implement, an interest in working overseas. For one, Stanford Law has one of the most selective international LLM advanced degree programs in the country and students tend to meet international colleagues who are extremely experienced and well networked in their home countries. There’s also a second, much larger group of international Stanford students—business leaders who attend Stanford’s executive education classes. These classes are held in key locations around the globe—including Brazil, Chile, Hong Kong, and Singapore—through Stanford’s Arthur and Toni Rembe Rock Center for Corporate Governance, which Siciliano directs. Since the typical rank of a person who attends a Hong Kong seminar is chief operating officer, the school forms useful connections with high-profile business leaders—who in a number of cases have helped JD students land internships and jobs.

Meanwhile, the law school’s switch to quarters to align its academic calendar with the rest of Stanford has increased opportunities for interdisciplinary study and resulted in more graduates with a number of skills and tools that aren’t exclusively law-related. In addition to offering more opportunities for international legal work through the Rule of Law Program’s projects in places like Iraq and Timor-Leste, the law school has introduced an array of clinics and classes on topics such as transactions, finance, venture capital, accounting, legal tech, and statistics—all designed to better prepare graduates to work in an increasingly complex legal and business environment.

But often knowledge of the legal system—and of how to get a deal done—is what opens doors into the business world. Glenn Chin-Yuen Chao, JD ’96 (MS ’93), was an associate at Fenwick & West when the firm sent him on a six-month rotation to Singapore. It was the late 1990s and a hard time for a newcomer to break into the crowded Silicon Valley venture-capital market. A small VC firm in Singapore offered him a job and, he notes, his law background helped him create opportunities. In the newly booming Asian economies, there were few people with deal savvy.

“I could negotiate a deal and then also get it done,” says Chao. “Legal sophistication for understanding early-stage investments is still absent in this part of the world.”

Chao ran three funds focused on Asian technology startups throughout Asia, primarily in Singapore and China. His current firm, Sirius Capital Management, runs a fund focused on more traditional industries in Singapore—food, manufacturing, and restaurants—where he says there’s a more attractive risk-reward profile.

Although skills acquired in law school are critical to starting a career in emerging markets, alumni often describe serendipity as playing an outsized role. And the path pursued by Yanping Cao, JD ’97, has been anything but linear. She grew up in China and planning to become a diplomat attended China’s most prestigious foreign-service university. But Cao graduated in 1989—the year of student protests that turned violent in Tiananmen Square, a place she went to most days during her lunch breaks. Following graduation, she switched course. Instead of becoming a diplomat, she taught at the school and when her husband accepted a fellowship in Boston, she left China for the United States.

While in Boston, Cao developed her interest in law and, choosing to pursue an American law degree, she became somewhat of an anomaly—the only international student in her JD class at Stanford. Her law associate career blossomed in New York and Palo Alto, but when her husband accepted a position in Shanghai, she moved to Clifford Chance, one of the largest international firms with an office there. Again, serendipity played a role: When most of her department defected to another firm, she decided to stay and leverage the seeming misfortune into the opportunity to build her own private equity and venture capital practice at the firm. In 2004, there was a “rising curve” for that kind of work in China, and she wound up representing Amazon in its first acquisitions in the country.

In 2008, Cao was recruited by GE in China, where she’s now the China general counsel overseeing its six lines of business there. Her U.S. legal education, she says, helps her think critically and identify the issues. “Most Chinese lawyers and law firms aren’t quite there yet,” she adds. She also finds that a big piece of her job is helping GE keep up with a “legislative tsunami”—as China’s regulatory state expands. And not always for the better. “Because regulators themselves may not have relevant experience, new regulations are not very well thought through,” she says. “Many of them are half-baked and overly broad.”

The combination of skills, timing, and luck also played a role in Masri’s initial investments in the Middle East. The Microsoft deal resulted from a chance meeting between Jordan’s king and Bill Gates at the World Economic Forum. In turn, that led to an opportunity for Masri’s company to bid on—and win—the chance to manage the $50 million Jordan Fund, the country’s first private equity fund. Serendipity played a role again, in the form of a chance meeting between the king and a private-equity mogul—and the recent sale of Jordan’s national phone company to France Telecom, which had left the state with a pool of cash to invest. “This is how things work: luck, preparedness, and hard work all rolled into one,” Masri says.

Back in the United States, some alumni are finding ways of taking advantage of the economic migration toward emerging markets, without leaving the country. As only a third-year associate, Ashley C. Walter, JD/MA ’09, already heads up a practice group, which he helped found with the backing of some SLS partners, at Fenwick & West. It centers on corporate social responsibility (CSR). With new requirements coming from Dodd-Frank and various state laws, the CSR field has exploded and increasingly affects technology companies, he says.

“Because of the increased pace of innovation and competition for new products, especially in consumer devices, supply chains have to be capable of producing at an increased pace,” says Walter. “Supply chains are so vast and the pressures are so intense that there’s a lot of focus on CSR.”

CSR is particularly relevant to U.S. firms’ activities in emerging markets, especially with managing supply chains in manufacturing goods. The CSR field received some major media attention a year ago, following a series of negative reports on the working conditions of Foxconn Electronics, a Chinese company that was manufacturing iPhones and iPads for Apple. And there has been an explosion in legal and regulatory requirements on supply chains. For instance, the Dodd-Frank Act introduced new requirements for companies importing mineral resources from countries where diamonds and other valuable minerals may fuel conflict and fund warlords.

Dan Cooperman, JD/MBA ’76, the former general counsel of Oracle and Apple who teaches a class at the law school on the role of the general counsel, agrees that CSR has become an “important element of brand protection and promotion.” He points to the role of social media and stories going viral, cautioning that mistakes made by companies in managing their foreign supply chains—whether worker safety, environmental issues, or bribery—can become public-relations nightmares overnight. “As recent incidents have proved, a corporation will now be held accountable, even for the failings in these areas by its agents and within its supply chain,” says Cooperman, who is now of counsel at Bingham McCutchen.

U.S. companies doing business in emerging markets have to comply with a thicket of anti-bribery rules under the Foreign Corrupt Practices Act. Benard says that the act has been a double-edged sword, reducing bribery but simultaneously making American companies fearful of practicing in emerging markets and potentially less competitive than local companies, particularly given that the exact limits of the act are ambiguous. “American companies can’t bribe, which is a very good thing, but it means that they need to become even savvier in terms of navigating the political dynamics in these markets,” he adds. “At the end of the day, you do need to have politicians on your side in that part of the world in order to be effective.”

Leith Masri, JD/MBA ’98, second from right, at a ceremony in Jordan commemorating an Estarta Solutions’ deal (photo courtesy of Leith Masri)

Franke, who grew up in multiple countries in South America, always wanted to do cross-border work, but he runs his firm, Indigo Partners, out of Phoenix, Arizona. His entry into emerging markets came out of his work at America West, where he got to know one of the investors, David Bonderman. Franke then launched his first Latin American fund with Bonderman.

“We were able to take U.S. practices, governance, and decision making and employ those in environments where doing so wasn’t as obvious to local managers—who often have autocratic or casual approaches to governance,” Franke says.

Despite the need to navigate in uncharted territories, where local law and custom can be fraught, business in emerging markets is booming for some. These days, Franke’s firm has people around the world, considering investments even in places as rapidly changing and risky as Iraq. “It’s coming at a rapid pace, a blinding speed,” he says. SL